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Tuesday, December 27, 2005

Moscow's tensions with the West over Iran's nuclear programme and its patchy record on democracy will test Russia's year at the helm of the G8 club of rich nations starting on Sunday.

And, with the security of world energy supplies at the top of Russia's G8 agenda, Putin may have to do some fancy footwork if he is to stop a row over the price of gas supplies to Ukraine rebounding on its chairmanship from day one.

"The Russian presidency of the 'Eight' will be associated not with roses but with a large quantity of healthy thorns," the daily Moskovsky Komsomolets predicted.

But Russia will still do its best to boost its international standing during its G8 presidency. READ MORE

For the former KGB spy-turned-president, easing into the driving seat of the elite Group of Eight on January 1 will be a crowning moment after years of Russia being treated as a wild card by the United States and other G8 partners.

In July, Putin will play the statesman when he hosts the key summit in his hometown of St. Petersburg with U.S. President George W. Bush and the leaders of Japan, Britain, France, Italy, Germany and Canada as his guests.

Analysts say his action to soften proposed curbs on human rights bodies and charities in Russia signals Putin's aim of making Russia's time in office smooth and non-controversial.

Held at arms-length by the G7 because of doubts about its democratic course and its commitment to the free-market, Russia has for some years been in the club but not fully a part of it.

"It will be very important for Mr Putin to show that Russia is not only a junior member of this very influential club, but a member who can chair the whole club for a while," said Nikolai Petrov of the Carnegie Endowment for International Peace. "It is very important from a symbolic point of view."

While still not in the top-10 of the world's largest economies, Russia joined the group in 1998, but does not participate in meetings of G7 finance ministers. The G8 does not have a formal structure and its agenda is set by the presidency.

BOOM ECONOMY

Russia has rarely been in better economic shape. It has seen seven straight years of growth on record world oil prices and is now in the grip of a consumer boom. Its foreign exchange coffers more than cover its $91 billion government debt.

As it establishes itself as a major gas and oil-producing power, part of Russia's G8 message will be that, though traditional world energy sources are in unstable parts of the Middle East, it remains an exporter of cast-iron reliability.

But that boast could evaporate quickly if its gas row with neighbouring Ukraine is not settled soon, observers say.

Ukraine has rejected the nearly five-fold hike in the price of natural gas demanded by Russia's Gazprom monopoly for 2006, saying it needs a transitional period to adjust its economy.

Without a compromise, Gazprom will stop supplies to its former ex-Soviet ally on January 1, the day Russia takes over the G8 presidency. That in turn could hit Western Europe customers -- with the finger of blame being pointed at Russia.

"If Western Europe shivers in the cold for even just two days, it will be a catastrophe for us," Moskovsky Komsomolets said. "Russia will acquire the reputation of an unreliable supplier with all the ensuing consequences".

DEMOCRACY, IRAN AND BELARUS

Mindful of Western unease over the course of democracy in Russia and the Kremlin's steady centralisation of power, Putin has prudently acted to improve his own profile ahead of time.

Just this month, he stepped into a controversy over a draft law that would have imposed tough curbs on foreign non-state bodies in Russia, virtually forcing parliament to tone it down.

Many Western critics, however, say the bill still provides for tough controls on non-governmental organisations (NGOs) and is in line with Putin's attempts to bring all aspects of Russian life under Kremlin control before elections in 2007-8.

With Tehran heading for a showdown with Western powers over their suspicions it is seeking nuclear arms, the Iran issue may also test the cohesion of the G8 under Russian chairmanship.

Unconvinced by Western arguments, Moscow is still helping build Iran's first nuclear reactor and has blocked European Union moves to report Iran to the U.N. Security Council.

And a final unexploded bomb under Russia's G8 chair could be Belarus, an ex-Soviet ally of Russia whose veteran leader, Alexander Lukashenko, is a pariah in the West.

Lukashenko is generally expected to secure a new term in a presidential election in March that many Western observers expect to be denounced as flawed by international monitors.

Putin may thus find himself in the awkward position of having to congratulate Lukashenko on an election victory denounced by his G8 partners.

"Belarus looks like being a bit of a train crash," said Katinka Barysch of the London-based Centre for European Reform.